IMF Rings The Alarm On Canada's Economy

Shortly after yesterday's rate hike by the Bank of Canada, its first since 2010, we warned that as rates in Canada begin to rise, the local economy which has seen a striking decline in hourly earnings in the past year, which remains greatly reliant on a vibrant construction sector, and where households are the most levered on record, if there is anything that can burst the local housing bubble, it is tighter monetary conditions. And a bubble it is, as the chart below clearly demonstrates... one just waiting for the pin, which as we suggested yesterday in ""Canada Is In Serious Trouble" Again, And This Time It's For Real", may have finally been provided thanks to the Bank of Canada itself.

Now, one day after our warning, the IMF has doubled down and on Thursday issued its latest consultation report, in which it said that while Canada's economy has regained some momentum, it warned that business investment remains weak, non-energy exports have underperformed, housing imbalances have increased and uncertainty surrounding trade negotiations with the United States could hurt the recovery.

The report - which concerningly was written even before the BOC hiked rates by 0.25% - also said the Bank of Canada's current monetary policy stance is appropriate, and it cautioned against tightening.

"While the output gap has started to close, monetary policy should stay accommodative until signs of durable growth and higher inflation emerge," the IMF said, adding that rate hikes should be "approached cautiously".

Directors noted that Canada’s financial sector is well capitalized and has strong profitability, but that there are rising vulnerabilities in the housing sector...  Directors agreed that monetary policy should stay accommodative and be gradually tightened as signs of durable growth and inflation pressures emerge. They recognized that monetary easing could complement fiscal stimulus, and may need to be considered along with unconventional measures if economic activity contracts significantly, although there is a risk that it could exacerbate housing imbalances.

While one can accuse the IMF of being traditionally dovish: recall Christine Lagarde - who famously said the IMF would be out of business if there were no world crises - has been screaming at central banks for hiking rates (in retrospect she will be proven right, just not yet), in this case she may be right: the recent sudden surge in Canadian interest rates especially on the long end will have a severe impact on loan demand, not to mention mortgage rates and, of course, housing demand.

Furthermore, in a statement following its annual policy review with Canada, the IMF cautioned that "risks to Canada's outlook are significant" particularly - drumroll - "the danger of a sharp correction in the housing market, a further decline in oil prices, or U.S. protectionism."

Risks to the outlook are significant. On the upside, stronger-than-expected growth in the U.S. could boost export and investment in the near term. On the downside, risks stem from several potential factors—including the risk of a sharp correction in the housing market, high uncertainty surrounding U.S. policies, or a further decline in oil prices—that can be mutually reinforcing. Policy choices will therefore be crucial in shaping the outlook and reducing risks.

The monetary fund also said that financial stability risks could emerge if the housing correction is accompanied by a recession, but there was good news: the IMF noted that recent stress tests have shown Canadian banks could withstand a "significant loss" on their uninsured residential mortgage portfolio, in part because of high capital position.

Well, we are about to find out.

Meanwhile, house prices in Toronto and Vancouver have more than doubled since 2009 and the boom has fueled record household debt, a vulnerability that has also been noted by the Bank of Canada. As Reuters adds, some economists believe the rate hike this week was at least partly aimed at reducing financial system imbalances, which is admirable... the only problem is that the first casualty of a correction in imbalances will be the blue line in the chart at the top.

"The main risk on the domestic side is a sharp correction in the housing market that impairs bank balance sheets, triggers negative feedback loops in the economy, and increases contingent claims on the government," the IMF warned, sounding the loudest alarm yet on Canada's economy even if it was reiterating previous warnings about Canada's long housing boom.

There was another danger: Trump. The Fund also warned U.S. trade protectionism could hurt Canada's economy, and laid out a scenario for an increase in tariffs that could come with the renegotiation of the North American Free Trade Agreement. The IMF was also kind enough to quantify just how little it would take to send the local economy into a tailspin: the IMF said if the United States raises the average tariff on imports from Canada by 2.1 percentage points and there is no retaliation from Canada, there would be a short-term negative impact on real GDP of about 0.4%. Naturally, if tariff increases were higher, an outright recession was virtually guaranteed.


GUS100CORRINA Thu, 07/13/2017 - 14:21 Permalink

IMF Rings The Alarm On Canada's EconomyMy response: So let me guess: CANADA WILL BE THE BLACK SWAN EVENT THAT TAKES THE MARKETS DOWN!!Inquiring minds want to know.

swmnguy Anon2017 Thu, 07/13/2017 - 22:16 Permalink

Yep, and that's why uncovered medical expenses, even for people who have coverage (or thought they did) are the #1 cause of consumer bankruptcy in the US.  In every other developed country that's simply unfathomable to people.So the obvious solution to the problem of runaway costs and premiums, and poor coverage, is to allow insurance companies to go back to selling policies that don't cover anything.  It's a win-win.  The premiums are lower so people (and their employers) can actually pay the premiums, and since they don't actually cover the patient, the insurance companies still make their margin.

In reply to by Anon2017

The Wizard CheapBastard Thu, 07/13/2017 - 19:25 Permalink

Justin is keeping up the family name:

  • Canadian Liberal Prime Minister Justin Trudeau’s “Accomplishments via Gail Sinclair
  • Trudeau hired 2 nannies for his kids at taxpayers’ expense
  • Trudeau put $10 million of taxpayers’ money into home renovations
  • Trudeau took $7.5 billion surplus that conservative Harper leadership left them, spent every dime of it, and then spent another $5 billion on top of that in ONE month, evidenced in and by their own budget
  • Trudeau got rid of tax free savings accounts
  • Trudeau takes lifetime ban off gay blood donations
  • Sophie needs more staff at taxpayers’ expense
  • Trudeau ends airstrikes against ISIS
  • Trudeau: We won't bomb ISIS even if attacked
  • Trudeau praises Fidel Castro
  • Trudeau praises China’s “basic dictatorship”
  • Trudeau makes taxpayers pay for his Caribbean vacation
  • Trudeau makes taxpayers pay for his China vacation (most expensive in decades)
  • Trudeau tries to Hide Bahamas Vacation from taxpayers
  • Trudeau's trip to Aga Khan's Bahamas island cost more than $127K
  • Getting on the Aga Khan’s helicopter for the Christmas getaway cost taxpayers $134,000, Trudeau says he has no choice, then blames RCMP
  • Trudeau (supposedly) is going to pay taxpayers back for $38,000 of personal expenses
  • Washington state dinner cost Canadian taxpayers $257,000
  • Trudeau stands up for women’s rights but prays with people who abuse
  • them by order of the quran and kills them. (moslems in mosques)
  • Trudeau elbowed an MP in the boob - Video
  • Trudeau says Canadian terrorists should have their citizenship and passes legislation
  • Toronto 18 terrorist will regain citizenship under new Trudeau legislation
  • Trudeau says “Bringing in ‘refugees’ diffuses risk of terror attacks in Canada” - Facts say otherwise:
  • - Furor erupts over REFUGEE bullying story in Halifax
  • - Canada: Grade School CHILDREN CHOKED WITH CHAINS, ATTACKED by Migrant Children, “Muslims rule the world,” Imitating the Slicing of the Throat
  • Canada in panic over ‘criminal’ refugees flooding across US border: ‘It’s about to blow
  • Canada on target to allow 300,000 migrants into the country by 2017
  • Trudeau refuses to stop illegal immigration of “refugees”
  • Trudeau boots Canadian troops out of barracks for “refugees” - 2015
  • Trudeau spent $6 million to boot military out of barracks, and “refugees” didn’t even stay there
  • Trudeau booting Canadian Troops out of 7 military bases barracks (at taxpayers’ expense of course)
  • Trudeau plans to build refugee camps on seven Canadian military bases -- Taxpayers will fund mosques, Korans
  • Trudeau's Military Cuts Risk Another Decade Of Darkness
  • Trudeau cancels soldiers’ danger pay, tax breaks
  • Trudeau Allows change to bestiality law
  • Trudeau passes legislation that Canadians cannot speak against transgenders
  • M-103 - islamophobia bill - Canadians cannot speak against Islam
  • Canadians cannot speak against M-103!
  • Trudeau Looking At Ways To Prevent Canadians from criticizing Members of Parliament!

In reply to by CheapBastard

Superdude The Wizard Thu, 07/13/2017 - 19:55 Permalink

So much bullshit in your post you fucking dumb yank. Tax free savings still going. Harper did not leave a surplus. No current plan to let 300 000 refugees in. c 16 is the bill you are referencing not M 103. This whole post is bullshit. Sad part is, Trudeau is not perfect and hopefully a one term prime minister, but Scheer is a former part time insurance sales clerk and the NDP are full of green party shitheads. Sad time to be a Canadian,  but stupid posts by dickless pig fuckers that guzzle buckets of cum like yourself do not help. Fuck off with your stupid posts

In reply to by The Wizard

Superdude The Wizard Thu, 07/13/2017 - 19:55 Permalink

So much bullshit in your post you fucking dumb yank. Tax free savings still going. Harper did not leave a surplus. No current plan to let 300 000 refugees in. c 16 is the bill you are referencing not M 103. This whole post is bullshit. Sad part is, Trudeau is not perfect and hopefully a one term prime minister, but Scheer is a former part time insurance sales clerk and the NDP are full of green party shitheads. Sad time to be a Canadian,  but stupid posts by dickless pig fuckers that guzzle buckets of cum like yourself do not help. Fuck off with your stupid posts

In reply to by The Wizard

Superdude CheapBastard Thu, 07/13/2017 - 19:46 Permalink

False. I am a doctor in Canada,  previously one in the U.S.  both countries have triage systems that work the same. Most urgent seen first. Cancer cases are seen over the cut fingers and sore stomachs. I was at Fry's one time and some yank was saying how healthcare in America was so much better because if he needed open heart surgery he could get it the next day. I asked him if he had disposable 75 000 he said no, then I said you wait in line, just like in Canada.   

In reply to by CheapBastard

VZ58 Superdude Fri, 07/14/2017 - 01:26 Permalink

Triage may be fine for basic ailments in Canada - if you can wait hours on end to be seen along with all the drunken or stoned Natives and white trash in every major hosptial waiting room on a Friday night, but don't tell us that advanced medical care is available in a timely manner for many complicated illnesses and cancers in Canada. It's treatment decision by commitee if you're dealing with cancer and get on the wait list if you need major surgery. Why don't we allow private centers to take up the slack for those who can pay? Such a sacred cow. Most go to the US anyway if they can afford it.

In reply to by Superdude

Superdude VZ58 Fri, 07/14/2017 - 05:55 Permalink

Agreed. Why not offer the public the chance to go to any hospital privately and offer 75 percent back in taxes? All the doctors would then go to these clinics, reducing the quality of the public system, right? Probably not, although the culture is changing, most doctor's prefer to be independent contractors as when you become a salaried employee the level of nonsense from poorly educated stooges becomes too much to handle. Unless a doctor owns their own clinic, there is a real issue of retention in private healthcare. I was salaried for two years, horrible but I was always able to tell the director that they did not control my license. I quit due to a multitude of factors, but being forced to be on a committee that would end suicide was about all the nonsense I could tolerate. There were people, not doctors, who thought this was possible. I didn't even mention the poor attempts we make at preventative healthcare. 

In reply to by VZ58

Superdude afronaut Fri, 07/14/2017 - 05:47 Permalink

You would think so, but in all honesty the best practitioners are usually university based and have a strong research background. Insurance is quite expensive and in some provinces in Canada if you are in a rural area your insurance and admin are covered. In the states nurse practitioners and physician assistants allow a gp to expand their practice while taking a cut of someone else's work. The swing from too many doctors running the system to too many .gov (lawyers) running the system has reduced outcomes. If you want to go to the start of the decline, Thatcher hiring John Nash and company in the early 80's to make healthcare a commodity really started the ball rolling down the hill. 

In reply to by afronaut

57-71 CheapBastard Thu, 07/13/2017 - 23:15 Permalink

For the hundredth fucking time on the internet - Canada's health system is not fucking free! Well for anyone with an income that is.Paying income taxes supports the "free" health system just as it does in every other country that uses this system.Hint - nearly every western country except the US which has the highest health care costs in the world.And, your assertion of treatent time is really skewed. The system responds very well to people based on criticality of need. I have seen huge improvements in this over the past 5 years.Yes, there wil always be someone fall through the cracks, that happens everywhere. At least here we don't have thousands of people each year losing everything they worked they entire lives for disappear due to a major illness and a completely ruthless health care system.

In reply to by CheapBastard

Superdude CPL Thu, 07/13/2017 - 20:00 Permalink

My first post after years of reading was a response to you. You're still fucking stupid after all this time. Look at SK, AB, and BC. We don't need America for fuck all. You are delusional and claim to be a watcher that watches the watchers yet you have consistently been full of Shit in your predictions. I'm calling you out yet again as being full of shit

In reply to by CPL

stocker84 (not verified) CPL Fri, 07/14/2017 - 09:23 Permalink

Canawho?The great white insignificant North?Who cares?Why are we talking about them?They are ball-less American wanna beeees.Fuckem, ey!When America sneezes, the whole planet gets sick. When Canada sneezes, you don't even hand them a Kleenex because they are so insignificant nobody gives a shit.Oh Canaduh, glorious and free... Because we border the US... We stand...errr... We sit and watch le 'ockey for dee...oh, Caaaanada we stand ...errrr sit and watch le 'ockey and drink a Molson for theee! Ya!!!Now fuck off, useless fucks.

In reply to by CPL

CPL GUS100CORRINA Thu, 07/13/2017 - 15:42 Permalink

Yeah, the water got cut off, along with food and electrical. Here's a point to make about the IMF.  Canada can live longer without a good credit rating on a fiat fractional reserve system (plus we've got BitCoins now) than they can live without water, food or electricity.  To deny them sustainance in a seige of words.  It's that simple.  Their slaves all die and they are sitting like King Midas.  Everything turns to gold, but they'll never eat another fresh apple, enjoy real meat or drink clean water again.  They should have learned by all the old myths and fables how the game is played.  Because right now it looks like they've requested extinction.And that's okay. They couldn't take care of themselves anyways, then they've made themselves their own problem.  Let that problem consume itself in the obvious manner it was going to end anyways.  This method is much faster than pretending there is anything to fish for there.  Long story short, let it happen and let them die for their faith in fiat.  It's kinder to kill the bunch of them off faster than slower as well.  They are obviously miserable and to be blunt once they are all dead and severely weakened state we can march the armada right through the front gate without much effort.  Then burn all the bodies, 'clean up' the rest and then bulldoze it to the ground. Protip:  Remember when you take over another 'company asset', you don't keep the old meat if they aren't going to play ball or make the necessary adjustements they told to do.  It appears they did not want to 'play ball'.  Just means it's okay to take their balls and add them to the collection of dicks and balls removed from prior dead beats that don't pay.

In reply to by GUS100CORRINA

Silversides GUS100CORRINA Thu, 07/13/2017 - 16:54 Permalink

You might be right on that. The fucking drama teacher in chief is busy giving millions to a fucking terrorist. Here in Alberta - the once conservative oil empire is run by fucking socialist cunts...the cabinet is made up of former high school teachers, cable repairmen and flight cannot make this shit up...commies to the west of us, a diesel dike in Ontario and the usual fuax pas in Quebec. We're fucked I tell ya.... fucked.....taking my beans bullets and bullion and moving up into the mountains.....boy we are really fucked...

In reply to by GUS100CORRINA